2022 (11) TMI 244 - AT - Income Tax

Tax Appeal Dismissed, Expenses Disallowed under Section 115JB

Andhra Pradesh Power Generation Corporation Ltd Hyderabad Versus Dy. C.I.T. Circle 1 (1) Hyderabad

The appeals filed by the assessee were dismissed by the Tribunal. The delay in filing the appeal was condoned, but provisions for bad and doubtful debts, ... Revision u/s 263 - provision for bad and doubtful debts as debited to the P&L accounts due to non-receipts of amounts Water charges receivable from Kothagudem Municipality since 1999, Amount receivable toward reimbursement of salaries of the staff counted against the Government posts from the Government for the period from 01.02.1999 to 31.03.2004, Bill of cost for an amount from various companies to the end of 31.03.2010. HELD THAT:- It is an admitted fact that the assessee has debited an amount in the P&L A/c towards miscellaneous losses and provisions written off which include provisions for bad and doubtful debts. Although the assessee has given the details of miscellaneous losses and provisions written ofhowever, the AO failed to consider the provisions for bad and doubtful debts since any provision for bad and doubtful debts cannot be allowed as an expenditure. Similarly, in the computation of income statement u/s 115JB, the assessee has taken the book profit at Rs.28866.02 lakhs and arrived at the income of Rs.484,74,65,032/- u/s 115JB as against Rs. 51008.45 lakhs. Despite the figures available on record, the Assessing Officer failed to examine the short computation of income u/s 115JB of the Act. Similarly, the Miscellaneous losses and provisions for bad and doubtful debt of Rs.24.55 crores includes Rs.15,03,01,740/- towards obsolete stores etc., and Rs.3434340 towards loss on sale of scarp. However, the Assessing Officer failed to examine the issue properly since the assessee is having scarp a/c separately and therefore, the obsolescence of store a/c should have been transferred to the scarp a/c and scarp receipts thereof, if any, should have been offered to tax. Since the Assessing Officer in the instant case has not examined the vital issues properly, therefore, the order passed by the Assessing Officer, in our opinion, has become erroneous as well as prejudicial to the interest of the revenue. Therefore, CIT, in our opinion, has rightly invoked the jurisdiction u/s 263 of the I.T. Act. The various decisions relied upon by the learned Counsel for the assessee, in the instant case, are distinguishable and not applicable to the facts of the present case since the Assessing Officer in the instant case has not at all examined the issue for which he has raised the queries. Accordingly, the order passed by the learned CIT is upheld and the grounds raised by the assessee are dismissed. Addition of disallowance towards provision for bad and doubtful debts - AO made the addition on the ground that the provision for bad and doubtful debt is not an allowable expenditure - HELD THAT:- A perusal of the order passed by the learned CIT (A) for the A.Y 2011-12 shows that similar addition made by the Assessing Officer was sustained by hi towards provision for bad and doubtful debts and the learned Counsel for the assessee admitted that the assessee has accepted the same and has not filed any appeal. Further, any provision for bad and doubtful debt debited to P&L A/c is not an allowable expenditure. In this view of the matter, we do not find any infirmity in the order of the learned CIT (A) on this issue. Accordingly, the same is upheld and the ground raised by the assessee is dismissed. Addition on account of loss on sale of scrap - HELD THAT:- Since the scrap is valued at saleable value, there cannot be any loss on account of sale of scrap. Further, the sale of scrap is not the basic business of the assessee. In this view of the matter and in view of the detailed reasoning given by the learned CIT (A), we do not find any infirmity in the order of the learned CIT (A) on this issue. So far as the argument of the learned Counsel for the assessee that in subsequent years, the learned CIT (A) has allowed such type of claim by deleting the addition made by the Assessing Officer on this issue and the Revenue has not filed any appeal against the relief granted by the learned CIT (A) is concerned, we do not find any merit in the same argument. Merely, because some wrong has been followed, the same cannot be perpetuated. Further, it is the settled proposition of law that the principle of res judicata does not apply to Income Tax Proceedings and every A.Y is separate and distinct. In this view of the matter, the order of the learned CIT (A) is upheld and the ground raised by the assessee is dismissed. Loss on obsolescence of stores - AO made addition being amount debited towards obsolescence of stores etc., under the head ‘Misc. Losses and Provisions” on the ground that the assessee is having scrap a/c separately and therefore, the same is not an allowable expenditure - HELD THAT:- CIT (A) sustained the addition. We do not find any infirmity in the order of the learned CIT (A) on this issue. As mentioned earlier, the assessee has made a provision towards obsolescence of stores and as mentioned by us in the preceding paragraphs, provision cannot be allowed as an expenditure especially when the assessee was unable to show us as to whether such provision was quantified in a scientific basis or not - whether there is any reversal of entry on account of increase or decrease in the provision in the subsequent years was also not shown by the assessee. Under these circumstances, we do not find any infirmity in the order of the CIT (A) on this issue and the ground raised by the assessee is dismissed. Issues Involved:1. Delay in filing the appeal.2. Allowability of provisions for bad and doubtful debts.3. Correct computation of book profit under section 115JB.4. Treatment of loss on sale of scrap.5. Treatment of loss on obsolescence of stores.Detailed Analysis:1. Delay in Filing the Appeal:The appeal filed by the assessee was delayed by 375 days. The assessee explained the delay was due to administrative standstill and confusion post the division of the State of Andhra Pradesh. The Tribunal condoned the delay after considering the reasons provided and admitted the appeal for adjudication.2. Allowability of Provisions for Bad and Doubtful Debts:The assessee debited Rs. 87,30,955/- towards provisions for bad and doubtful debts in the P&L account. The CIT noted that provisions for bad and doubtful debts are not allowable expenditures under the Income Tax Act. The assessee argued that these amounts were long-pending receivables and were written off as irrecoverable. However, the CIT (A) upheld the disallowance, stating that the amounts were receivables from government entities, and there was no confirmation that these amounts would not be paid in the future. The Tribunal agreed with the CIT (A), noting that the provision for bad and doubtful debts is not an allowable expenditure under the Income Tax Act.3. Correct Computation of Book Profit Under Section 115JB:The assessee computed book profit under section 115JB at Rs. 28,866.02 lakhs, whereas the CIT noted it should have been Rs. 51,008.45 lakhs. The CIT observed that the Assessing Officer failed to verify the short computation of income under section 115JB. The Tribunal upheld the CIT's order, stating that the Assessing Officer did not properly examine the computation of book profit, making the original assessment order erroneous and prejudicial to the interests of the Revenue.4. Treatment of Loss on Sale of Scrap:The assessee claimed a loss of Rs. 3,43,45,409/- on the sale of scrap. The CIT (A) disallowed this loss, stating that the scrap was valued at realizable value, and there could not be a loss on its sale. The Tribunal agreed, noting that the sale of scrap is not the basic business of the assessee, and the loss on scrap cannot be termed as a business expenditure. The Tribunal upheld the addition made by the Assessing Officer and sustained by the CIT (A).5. Treatment of Loss on Obsolescence of Stores:The assessee debited Rs. 15,03,01,740/- towards obsolescence of stores. The CIT (A) disallowed this amount, stating that it was a provision and not an actual expenditure. The Tribunal upheld this view, noting that provisions cannot be allowed as expenditures unless quantified on a scientific basis. The assessee failed to show any reversal of entries on account of changes in the provision in subsequent years. Thus, the Tribunal upheld the addition made by the Assessing Officer and sustained by the CIT (A).Conclusion:Both appeals filed by the assessee were dismissed. The Tribunal found no merit in the arguments presented by the assessee and upheld the orders of the Assessing Officer and the CIT (A) on all issues. The order was pronounced in the Open Court on 2nd November 2022.